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Many retirement funds are often overlooked in divorces because they are far off and not worth anything currently due to their inaccessibility; however, a 401k is accessible at any time if you are willing to pay the taxes on the money to make the withdrawal. This means that if you or your spouse has a 401k, that money will be considered in the divorce settlement. Your 401k will be included in the divorce settlement, so you need to consider its worth to you and if you need an attorney to help protect the money you have saved.
Is my 401k Considered Marital (Community) Property?
Most states view retirement benefits that you accrued during the marriage as community property. However, like all property, any benefits you accrued before the marriage are your separate property. Separate property is not considered in the divorce settlement; it is your sole property and your spouse has no right to your separate property in a divorce. A 401k is a defined contribution plan. This type of plan is voluntary and you are in charge of maintaining and managing your benefits. You have control over how much you contribute each paycheck and your employer may contribute as well. Although you may have been the sole contributor and manager of this fund, it is still accessible in the divorce. A 401k will be viewed as community property and will be divided in the divorce.
The important thing to deal with regarding your 401k is determining the value of the plan, DURING the marriage. Because a 401k can be distributed at the time of the divorce, it is a present value that must be considered in the agreement. Note, a spouse is only entitled to half of the 401k amount that accrued during the marriage.
Determining the Value of your 401k
The easiest way to determine the value of your 401k is to contact your plan administrator or use your last yearly statement as a reference. From these documents a professional is able to determine exactly how much was earned before the marriage and the amount that was added from the day you got married until the divorce. While you can try to determine these amounts on your own, it is highly recommended to hire an expert that has experience with this and is an unbiased third party.
Hiring a talented actuary will give you the exact amounts of how much you and your spouse will receive and how much was solely yours to begin with; having this coming from a third party professional will reduce the chances of your spouse contesting the fairness of the separation of the 401k. An actuary will cost you between $250-1,000, but that cost is well worth it to be certain that you are not losing out on any money you’ve earned. The reason this calculation is so complicated is because return on investment needs to be taken out of the final calculations, along with any losses; a talented actuary will know exactly which deductions to make.
Even if your 401k is still a small account, you still need to protect your assets. Divorces can be ruthless, and you deserve to keep the money that is rightfully yours. On the other side of the spectrum, do not try to hide the amount of money in your 401k. While it may seem unfair that your spouse will receive half of your hard-earned money, the repercussions for hiding the money will far outweigh what you would have lost if you had just agreed to give them half. If an actuary or attorney advises you to falsify the documents or use old statements, do not listen. Although it is enticing to find a way to hide the money from your spouse, if your spouse has an attorney they will likely subpoena all documents and potentially hire an investigator to look into the funds. Getting caught in this scheme is not worth it.
Dividing your 401k in Arizona
Once the actuary determines the amounts that are community property and separate property, the process is rather simple. If your spouse and their attorney agree to the amount determined by the actuary, then the funds that are to be given to your spouse will simply be transferred from your 401k account into another tax-deferred savings option at the time that the divorce is made final. Transferring it to another savings medium is preferable in order to avoid paying the fees and taxes involved in removing money from your 401k early. If your spouse wants the cash now, a talented attorney will ensure that the taxes are paid by your spouse and not yourself. If they agree to the transfer, your plan administrator will be able to help you work through this transfer and all that will be required of you to make that change to your benefits plan.
Get the Help you Need
When dealing with your money, you want to make sure that you do all you can to protect yourself. A contested divorce will be a battle, and you have to be willing to fight for what is rightfully yours. An attorney will know exactly how to protect what is yours and help you create a strategy to maintain all that you deserve. Many people try to represent themselves in a divorce, but end up getting taken advantage of by the other side. At JacksonWhite, our family law team has over 15 years of experience in helping clients through difficult divorces. Their years of experience and expertise will give you the added knowledge and understanding that you will need through this complicated and difficult process. If you are facing a divorce and have assets, such as a 401k that need to be protected, please contact us today at (480) 467-4348 to schedule your case consultation today. Divorce can be painful enough, don’t let your spouse take more from you than they already have; hire talented legal counsel to protect you and your future livelihood.
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